Layoff insurance 'suitable for the times,' Edmonton business says

With a nod to Alberta’s faltering economy, an Edmonton business is offering layoff insurance to cover up to six months of mortgage payments for homeowners who lose their jobs.

“Unfortunately it’s a product suitable for the times,” Gord McCallum, president of the First Foundation group of companies, said Thursday.

“Losing your job is bad enough, but we feel that losing your home as a result of it, especially when it’s really no fault of your own — you’re kind of a victim of the economic circumstances we’re all in — would be really tragic. We wouldn’t want to see somebody lose their home over it if it could be avoided.”

Alberta has seen tens of thousands of job losses since the fall of 2014, when the price of oil started its long, steep downward slide. In its latest quarterly economic outlook Thursday, ATB Financial said further rounds of layoffs are likely, especially in the energy sector. Unemployment may exceed 7.5 per cent in the first half of 2016 and will average 7.2 per cent for the year, ATB said.

First Foundation’s layoff insurance is available to Canadian residents between the ages of 18 and 63 who have a mortgage and are eligible to claim employment insurance benefits. They must receive a T4 slip as an hourly or salaried employee, and must have worked at least 25 hours per week for the past 30 consecutive days.

Another condition is that the purchaser must not already know that a layoff is pending. The insurance won’t pay out if a layoff comes within 90 days of the policyholder signing up.

When a policyholder gets laid off, a predetermined sum is paid directly to the mortgage lender. The payments are not taxable and won’t affect EI claims.

The insurance costs about $60 per month for a $300,000 mortgage, or $77 per month for a $400,000 mortgage, McCallum said.

First Foundation started looking into layoff insurance after a client asked for it in October 2014. Now that it’s available, that client and his wife have each bought policies, McCallum said.

Some banks and other mortgage lenders also offer layoff or job-loss insurance but McCallum said First Foundation’s product is different because it’s independent — not tied to the mortgage — and follows the policyholder if they sell and buy another home.

The insurance is underwritten by SSQ Financial Group of Quebec City, he said. SSQ has offered job-loss mortgage insurance since 2012 in Ontario, British Columbia and Alberta.

Job loss is a major factor in mortgage defaults, which can lead to foreclosure. Statistics show that when employment levels fall, mortgage arrears rates increase within a few months.

“In Canada, most mortgage defaults are due to reduced ability to pay, especially including job loss, but also income reductions due to reduced hours or reduced hourly pay rates,” industry association Mortgage Professionals Canada said in its last annual report, published in December. Marital breakdown is another factor, the report said.

The rate of mortgage arrears in Canada continues to fall gradually and is now close to the level seen before the recession of 2008/09, the report said. At the time the report was written, the decline in oil prices hadn’t had “any material effect” on arrears rates, it said.

The Canadian Bankers Association reports that in September, 1,575 of a total 574,263 mortgages in Alberta, the Northwest Territories and Nunavut were three or more months in arrears. The arrears rate for the region was 0.27 per cent — on par with the national average.

The Mortgage Professionals Canada report said that of Canada’s 9.74 million homeowners, 5.71 million have mortgages. Another 3.51 million have no financing on their homes.

About 2.15 million Canadians — 1.63 million with mortgages and 520,000 without — have home equity lines of credit.

Statistics Canada says Canadian household mortgage debt stood at $1.23 trillion in the third quarter of 2015.

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